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Demerit Aid: Why More Wealthy Students Are Getting Cash to Attend College at the Expense of their Low-Income Peers.

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Quick: What comes to mind when you hear the phrase “financial aid?” One likely image: Big checks from colleges intended to offset the cost of higher education for low-income students.

That image would’ve been accurate 40 years ago. Back in the 60s and 70s, President Lyndon B. Johnson and Sen. Clairborne Pell (think Pell Grants) passed legislation to help make higher education affordable for eligible low-income students. Fast forward to today: In a new policy paper,Stephen Burd unearths evidence that certain colleges are actually undermining government programs to help needy students earn college degrees. How? By siphoning massive amounts of institutional grant aid into the hands of wealthy, high-achieving students, i.e. those who don’t need it.

I asked Burd to explain why this is happening, how the trend went unnoticed in Washington until now, and what policymakers can do to ensure federal grant programs aren’t undercut. Our edited conversation is below.

Elizabeth Weingarten: When did this trend start, and why?

Stephen Burd: It began in the 1980s but has really accelerated since. There are a number of factors that account for this shift: the growth of an “enrollment management industry,” which has shown colleges how to use their institutional financial aid strategically to build their prestige and revenue and, as is often the case in answering the question of “what went wrong” in higher-end, the emergence of the U.S. News college rankings, which rewards colleges for enrolling the "best and brightest" students and the wealthiest.

For public colleges, the trend has been much more recent than at the privates. As states increasingly disinvest from their public college systems, these schools have been looking for alternative sources of revenue. That's where the aggressive recruitment of "full-pay" students comes in. Wrap up all these dynamics, and you can see how universities want strong students who can pay in cash.

SB: There’s nothing inherently wrong with merit aid. It’s just that colleges have limited financial aid budgets – so if they are using a large portion of their aid to attract the best – and wealthiest – students, then they are spending less aid on those who truly need it to attend. There are some who say that the increasing use of merit aid to attract “full pay” students is helping low income students because it provides colleges with more revenue to spend on need-based aid. While this may be true at individual colleges, my paper shows it has largely come at the expense of low-income students. I show that by looking at net price data (net price is the amount of money that first-time, full-time students with family incomes of $30,000 or less pay after all grant and scholarship aid is taken into account) as well as highlight some other research that has been conducted on this subject.

EW: You note that this change in aid distribution has “ barely registered in Washington.” How do you explain that?

SB: Policymakers like to think that colleges are continuing to complement their efforts to make higher education more accessible for low-income students, but as my paper shows, that’s not the case. They may be in the dark partly because college lobbying groups have fought the disclosure of more data on the net price they charge to all of their students.

EW: You rate the most expensive private and public colleges for low-income students in terms of the average net price. How have private schools like Bowdoin and Vanderbilt been able to keep net prices relatively low without jeopardizing their top standing in the U.S. News & World Report rankings?

SB: I'm not an expert on the U.S. News rankings, so I can't say for sure. But it's certainly the case that the low-income students these highly exclusive colleges are enrolling are of an extremely high caliber. They are the cream of the crop -- so they don't hurt a school's rankings at all. Amherst College is a perfect example. The school has made great strides over the last decade in becoming one of the most socioeconomically diverse of the elite private colleges. At the same time, U.S. News continues to consistently rank Amherst as one of the top three liberal arts colleges in the country.

EW: Is there a private school that could serve as a model for others?

SB: In the report, I point to Amherst and Reed Colleges -- schools that have been led by presidents who were deeply committed to enrolling low-income students and charging them affordable prices. This has been particularly impressive at Reed, which has an endowment that is a fraction of Amherst’s. I think one thing this paper shows is that it is very possible for top colleges to be truly socio-economically diverse, but it takes real commitment from a school's leadership to achieve this.

EW: What about a public school?

SB: There are a significant number of public colleges that continue to enroll a substantial share of low-income students and charge them a manageable net price. I wasn’t quite sure how to determine which of these is doing the best job.

EW: What are some of the key differences you see in the way this trend is playing out in public vs. private institutions?

SB: Low-income students are generally doing much better at public colleges than at private ones. However, as public institutions deal with decreasing state funding and growing competition, particularly for out-of-state students, they are increasingly adopting the enrollment practices of their private college counterparts -- using their institutional aid strategically to attract the best students and the wealthiest. This is alarming because it could truly shut down what has long been a pathway to the middle class for students from low-income and working-class families.

EW: If readers only remember three statistics from the paper – which ones should they take away?

SB: 1. Nearly two-thirds of the private colleges analyzed in the paper charged students from the lowest-income families, those making $30,000 or less annually, an average net price of over $15,000 a year.

2. Only 53 private colleges, or 11 percent of those examined, charged the lowest-income students an average net price under $10,000.

3. 164 public colleges, or 34 percent of those analyzed, charged the most financially needy students an average net price over $10,000, with a quarter of them coming from just two states: Ohio and Pennsylvania.

EW: What are the best next steps for policymakers?

SB: Policymakers need to acknowledge this doesn’t seem to be a problem that colleges can solve on their own.

New America's Education Policy Program has recommended that the government take a carrot-and-stick approach. The carrot is to help schools that don't have the resources to keep down the net prices of the low-income students they serve. The plan would offer Pell bonuses to financially-strapped public and private four-year colleges that serve a substantial share of Pell Grant recipients and graduate at least half of their students school-wide. The goal would be to help these schools boost their institutional aid budgets and bring down the net prices they charge the neediest students.

The stick is for wealthier colleges that have chosen to divert their aid to try to buy the best students so they can climb the U.S. News rankings. These schools would be required to match at least a share of the Pell dollars they receive.

Together, the Pell matching and Pell bonus proposals are aimed at ensuring that colleges live up to their commitments to serve as engines of opportunity, rather than as perpetuators of inequality.